Union Budget 2013: Investors’ Expectations

In the upcoming budget, certain changes in the investment and taxation regulations could go a long way in helping investors, says Hemant Rustagi.

The Union Budget is an important event that is keenly awaited by everyone, as it usually sets the tone of how the economy and individuals’ finances are likely to be impacted over the next one year. The story is no different this year too. While the Finance Minister is under tremendous pressure to contain the fiscal deficit at 5.3 per cent, there are certain areas that require him to take some urgent steps for a more vibrant economy and a healthy investment environment in the country. Here are some of these:

Expenditure On Education

Everyone would agree that education is the key to a nation’s success. However, the cost of education is becoming prohibitive, and there is an urgent need to address this issue. While the government will do well to allocate more funds for education in the budget for the poorer sections of society, some meaningful tax concessions can work for the others.

The current tax benefits under Section 80C are not sufficient, and there is hardly any scope to claim tax exemption for tuition fees. A significant part of the exemption limit under Section 80C is exhausted for options like Employees Provident Fund (EPF), Public Provident Fund (PPF), Life Insurance Premium, National Savings Certificate (NSC) and repayment of the principal amount of housing loans.

Thus, it is quite evident that the Finance Minister needs to either enhance the overall 80C limit or introduce a separate tax exemption for higher education. Besides, the children’s education allowance of Rs 100 per month per child (for a maximum of two children) is too insignificant to help the cause of parents looking to provide the best of education to their children.

Interest On Housing Loans

Buying a dream house is one of the most important goals of every investor in the country. As per the current provisions, the interest paid on housing loans, upto a maximum of Rs 1.50 lakh, is exempt from income tax. In the current scenario, however, this does not even cover the interest on a housing loan of Rs 15 lakh. Therefore, there is an urgent need to revise this limit upwards.

Of course, enhancing the exemption limit alone may not be the solution to the woes of the Indian middle class. Lower interest will also have a role to play.

Equity Investments

In last year’s Union Budget, the Finance Minister had announced the Rajiv Gandhi Equity Savings Scheme (RGESS) with an objective of spreading the equity cult in the country. The RGESS allows an income tax deduction of 50 per cent to first time equity investors who invest upto Rs 50000 and have an annual income of less than Rs 10 lakh. The eligible securities under the scheme are stocks from the BSE 100 or NSE 100, listed shares of Navratna, Maharatna and Miniratna companies, IPOs of PSUs where the turnover is more than Rs 4000 crore as well as ETFs of mutual funds.

While the RGESS is certainly a good step, there is a need to revamp the scheme to make it more meaningful and effective. For example, there is no logic in restricting the benefits to only those whose annual income is less than Rs 10 lakh. Ideally, this scheme should be open to everyone in the country on the line of Equity-Linked Savings Schemes (ELSS).

Besides, it should not be a one-time exemption. Instead, an ongoing exemption may help investors across the length and breadth of the country to embrace equities over time. By allowing index funds of mutual funds in addition to the ETFs, the process can be made much simpler.

Medical Expense Reimbursements 

Currently, any expenditure incurred or reimbursed by the employers towards medical expenses incurred by employees on themselves or their dependants is not chargeable to tax upto Rs 15000 per annum. Needless to say, this exemption is not sufficient as the cost of medical treatment has shot up significantly.

Investors tend to watch the Union Budget anxiously and with a great deal of expectation. While there is no denying that the budget is an important event, it should not be the main factor that investors base their investment strategy on. No doubt, some of the announcements in the budget may require individuals to either tweak their investment strategy slightly or realign the asset allocation to an extent. However, treating the budget as an event that can change the entire course of their long-term investment process can be a mistake that can cost them dearly.

Hemant Rustagi

CEO, Wiseinvest Advisors